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    MGT213 06 Financial Planning and Forecasting Exercise

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    Pablo Inocencio
    This document provides the 2018 balance sheet and income statement for Jai Ho Corporation. It then lists assumptions to use in preparing projected financial statements for 2019, including an expected increase in sales to 5 billion pesos. The assumptions cover gross profit margin, operating expenses, depreciation, debt payments, dividends, and income taxes. The requirement is to prepare projected balance sheets and income statements for 2019 based on these assumptions.

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    MGT213 06 Financial Planning and Forecasting Exercise

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    Pablo Inocencio
    399 views3 pages
    This document provides the 2018 balance sheet and income statement for Jai Ho Corporation. It then lists assumptions to use in preparing projected financial statements for 2019, including an expected increase in sales to 5 billion pesos. The assumptions cover gross profit margin, operating expenses, depreciation, debt payments, dividends, and income taxes. The requirement is to prepare projected balance sheets and income statements for 2019 based on these assumptions.

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    This document provides the 2018 balance sheet and income statement for Jai Ho Corporation. It then lists assumptions to use in preparing projected financial statements for 2019, including an expected increase in sales to 5 billion pesos. The assumptions cover gross profit margin, operating expenses, depreciation, debt payments, dividends, and income taxes. The requirement is to prepare projected balance sheets and income statements for 2019 based on these assumptions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    399 views3 pages

    MGT213 06 Financial Planning and Forecasting Exercise

    Uploaded by

    Pablo Inocencio
    This document provides the 2018 balance sheet and income statement for Jai Ho Corporation. It then lists assumptions to use in preparing projected financial statements for 2019, including an expected increase in sales to 5 billion pesos. The assumptions cover gross profit margin, operating expenses, depreciation, debt payments, dividends, and income taxes. The requirement is to prepare projected balance sheets and income statements for 2019 based on these assumptions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    The document provides the 2018 balance sheet and income statement of Jai Ho Corporation and requests the preparation of projected financial statements for 2019 under two different scenarios.

    The assumptions made in preparing the projected financial statements for 2019 under Exercise 1 include using the financial statement method, reducing the gross profit margin to 32.5%, keeping variable operating expenses at 5% of sales, using 20 years for depreciating property and equipment, and several others regarding long-term debt, dividends, taxes, and external funding needs.

    The assumptions made in preparing the projected financial statements for 2019 under Exercise 2 include an increase in sales to ₱5 billion, increasing the gross profit margin to 35%, keeping variable operating expenses at 5% of sales, keeping fixed operating expenses at ₱750 million, reducing days' receivables and inventories, and several others regarding the relationship between certain accounts and sales as well as long-term debt, dividends, and taxes.

    MGT213 Finance 1 Financial Planning and Forecasting Exercise

    1. Below are the 2018 balance sheet and income statement of Jai Ho Corporation, a trading company:

    Jai Ho Corporation
    Balance Sheet
    December 31, 2018
    (in millions of pesos)
    ASSETS
    Current Assets
    Cash ₱225
    Accounts receivable 1,080
    Inventories 810
    Prepaid expenses 45
    Total current assets ₱2,160
    Noncurrent assets
    Property, plant, and equipment ₱2,000
    Less: accumulated depreciation 410
    Total noncurrent assets ₱1,590
    TOTAL ASSETS ₱3,750

    LIABILITIES AND EQUITY


    Current liabilities
    Accounts payable ₱675
    Accrued expenses payable 225
    Current portion of long-term debt 200
    Total current liabilities ₱1,100
    Long-term debt 800
    Total liabilities ₱1,900
    Stockholders’ equity
    Paid in capital ₱750
    Additional paid in capital 500
    Retained earnings 600
    Total stockholders’ equity ₱1,850
    TOTAL LIABILITIES AND EQUITY ₱3,750

    Exercise adapted from Ybañez, R.C., Ilano A. (2010). Corporate Finance Text & Philippine Cases – Volume 1 2e.
    MGT213 Finance 1 Financial Planning and Forecasting Exercise

    Jai Ho Corporation
    Income Statement
    For the Year Ended December 31, 2018
    (in millions of pesos)
    Sales revenue ₱4,500
    Cost of sales 2,925
    Gross profit 1,575
    Operating expenses 975
    Earnings before interest and taxes 600
    Interest expense 150
    Earnings before taxes ₱450
    Income taxes 135
    NET INCOME ₱315

    Out of the ₱975 million operating expenses in 2018, ₱750 million is fixed.

    For 2019, the management expects sales to increase to ₱5 billion. Gabriel Ho, the president of Jai Ho,
    wants to see the projected balance sheet and income statement for 2009. He asked his chief financial
    officer to prepare these projected financial statements.

    The following assumptions are made in the preparation of the projected financial statements:

    a. The financial statement method is used.


    b. Gross profit margin is reduced to 32.5%
    c. Variable operating expenses remains at 5% of sales.
    d. Use 20 years for depreciating property, plant, and equipment. There will be no acquisition of new
    equipment in 2019.
    e. Long-term debt has an interest rate of 15%. ₱200 million in principal balance is paid at the end of
    each year.
    f. The company has a dividend pay-out ratio of 60% applied on the preceding year’s reported net
    income.
    g. Use short-term notes payable for external funds needed.
    h. Income tax rate is 30%

    Requirement:
    Prepare the 2019 projected balance sheet and income statement.

    2. Use the same 2018 financial statements as in Exercise 1, but use the following assumptions for 2019.

    a. Sales will increase to ₱5 billion.


    b. Gross profit margin will be increased to 35%.
    c. Variable operating expenses will remain at 5% of sales.
    d. Fixed operating expenses will remain at ₱750 million.
    e. Days’ receivables will be reduced to 80 days. Assume 360 days in a year.
    f. Days’ inventories will be reduced to 90 days.

    Exercise adapted from Ybañez, R.C., Ilano A. (2010). Corporate Finance Text & Philippine Cases – Volume 1 2e.
    MGT213 Finance 1 Financial Planning and Forecasting Exercise

    g. The following accounts will vary in direct proportion with sales:


    • Cash
    • Prepaid expenses
    • Accounts payable
    • Accrued expense payable
    h. Use 20 years for depreciating property, plant, and equipment. There will be no acquisition of new
    equipment in 2009.
    i. Long-term debt has an interest rate of 15%. ₱200 million in principal balance is paid at the end of
    each year.
    j. The company has a dividend pay-out ratio of 60% applied on the preceding year’s reported net
    income.
    k. Use short-term notes payable for external funds needed.
    l. Income tax rate is 30%

    Requirement:
    Prepare the 2019 projected balance sheet and income statement.

    Exercise adapted from Ybañez, R.C., Ilano A. (2010). Corporate Finance Text & Philippine Cases – Volume 1 2e.

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